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A
PROJECT REPORT
On
UNION BANK OF INDIA
Submitted to
The Director
Bharati Vidyapeeth Deemed University
IMED, Pune
For the Award
Master of Business Administration (MBA)
By
Pooja Dwivedi
Under the Guidance of
Prof.Dr.Kriti Gupta
2013
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Certi fi cate fr om the company/organi zation
(Oncompany letter head)
This is to that (pooja dwivedi)daughterof( Mr R.R dwivedi)pursuing MBA from I nstitute of
management and entr epreneur ship development,punehas successfully completed the
project reportin our organization on the titled,Retail lending &NPA Managementfrom 10
june to6th Augest2013.During
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Certificate of Originality
This is to certify that the project report entitled Retail lending & NPA Managent Submitted
to Bharati Vidyapeeth Deemed University, Pune in partial fulfilment of the requirement for
the award of the degree of MBA is an original work carried out by Ms Pooja dwivedi under
the guidance of Ms. Kirti Gupta.The matter embodied in this project is a genuine work done
by Pooja Dwivedi to the best of my knowledge and belief and has not been submitted
before,neither to this University nor to any other University for the fulfilment of requirement
of any course of study.
Sinature of the Student Signature of the Guide
Designation
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Certificate
This is to certify that the project titled Finance of Retail lending & NPA Management is an
academic work done by pooja dwivedi submitted in the partial fulfilment of the
requirement for the award of the degree of Master of Business Administration from Bharati
Vidyapeeth Deemed University; Pune. It has been completed under the guidance of Ms.kirti
Gupta and Mr. Ms Patel We are thankful to Union bank of india.for having allowed our
student to undergo project work training. The authenticity of the the project work will be
examined by the viva examiner which includes data verification,checking duplicity of
information etc.and it may be rejected due to non fulfilment of quality standards set by the
institute.
Dr. Sachin S.Vernekar
(Director IMED)
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Acknowledgement
I would like to express my gratitude to MR. MS PATEL, Branch manager,Union Bank of
India, pune krve road and MR. vyankat patil manager), Union Bank of India, krve roadbranch, pune, for giving me the permission to carry out my summer internship at UnionBank of India, pune. Their support and encouragement has been a source of inspiration forme and made my journey in Bank of India a delight.
I would like to thank MR . (Senior manager) and Mr. vyankat patil, Manager (Credit) ofAdvances Department,Union Bank of India, Pune i who as my Project guide alwaysencouraged me to do new things, critically analyze the cases and gave his inputs as and whenit was necessary.
My gratitude also goes to Professor krirti gupta, Institute of Management and
Entrepreneurship Development, Pune, who as my faculty guide help me in my project andguide me . I thank him for guiding me at every step of the project.
I was almost convinced that I was aware of the business & market forces that drive theBanking industry. However, once I started out working on the same, I realized how grosslyinadequate my knowledge had been.
Name & Signature of student
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Preface
This project report attempts to bring under one cover the entire hard work and dedication put
in by me in the completion of the project work on A Study on Retail Banking & NPA
Management
I have expressed my experiences in my own simple way. I hope who goes through it will find
it interesting and worth reading. All constructive feedback is cordially invited.
The research project has thoroughly revised & made up to date. The contents have been
strengthened up date & modified to improve clearly & arouse enthusiastic interest in the
subject of finance. Figures, charts, diagrams, models, tables etc. liberally used to easily
understand the complex things.
The extract of the work is presented in this report under various heading that includesIndustry profile, research objective, research design, data collection method, Sampling
design, analysis and interpretation, results, conclusion and suggestions
Thank you
Name & Signature of student
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Name & Signature of the student
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CONTENT
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Company profile
History
Union Bank of India (UBI) was registered on 11 November 1919 as a limited company
inMumbaiand was inaugurated byMahatma Gandhi. At the time of India's Independence in1947, UBI still only had four branches - three in Mumbai and one inSaurashtra, all
concentrated in key trade centres. After Independence UBI accelerated its growth and by the
time the government nationalized it in 1969, it had grown to 240 branches in 28 states.
Shortly after nationalization, UBI merged in Belgaum Bank, a private sector bank established
in 1930 that had itself merged in a bank in 1964, the Shri Jadeya Shankarling Bank. Then in
1985 UBI merged in Miraj State Bank, which had been established in 1929. In 1999
theReserve Bank of Indiarequested that UBI acquire Sikkim Bank in a rescue after extensive
irregularities had been discovered at the non-scheduled bank. Sikkim Bank had eight
branches located in the North-east, which was attractive to UBI.
UBI began its international expansion in 2007 with the opening of representative offices inAbu Dhabi, United Arab Emirates, and Shanghai, Peoples Republic of China. The next year,
UBI established a branch in Hong Kong, its first branch outside India. In 2009, UBI opened a
representative office in Sydney, Australia.
At present, the offshore banking operations of Union Bank of India are lead by its branches in
Hong kong and newly opened branch in Dubai at Dubai International Financial Centre.
http://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Mahatma_Gandhihttp://en.wikipedia.org/wiki/Mahatma_Gandhihttp://en.wikipedia.org/wiki/Mahatma_Gandhihttp://en.wikipedia.org/wiki/Saurashtra_(region)http://en.wikipedia.org/wiki/Saurashtra_(region)http://en.wikipedia.org/wiki/Saurashtra_(region)http://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Saurashtra_(region)http://en.wikipedia.org/wiki/Mahatma_Gandhihttp://en.wikipedia.org/wiki/Mumbai7/27/2019 Report on NPA
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NON PERFORMING ASSETS FIRST PART:
DIFINITION OF NPA
Definition of 'Nonperforming Asset'
A debt obligation where the borrower has not paid any previously agreed uponinterest and principal repayments to the designated lender for an extended period oftime. The nonperforming asset is therefore not yielding any income to the lender inthe form of principal and interest payments.
explains 'Nonperforming Asset'
For example, a mortgage in default would be considered non-performing. After aprolonged period of non-payment, the lender will force the borrower to liquidate anyassets that were pledged as part of the debt agreement. If no assets were pledged, the
lenders might write-off the asset as a bad debt and then sell it at a discount to acollections
CLASIFICATION OF NPA
NPA is a classification used by financial institutions that refer to loans that are in jeopardy of
default. Once the borrower has failed to make interest or principal payments for 90 days the
loan is considered to be a non-performing asset. Non-performing assets are problematic for
financial institutions since they depend on interest payments for income
. Banks are required to classify non-performing assets further into the following threecategories based on the period for which the asset has remained non-performing and therealisability of the dues:
1. Sub-standard assets: a sub standard asset is one which has been classified as NPA fora period not exceeding 12 months.
2. Doubtful Assets: a doubtful asset is one which has remained NPA for a periodexceeding 12 months.
3. Loss assets: where loss has been identified by the bank, internal or external auditor orcentral bank inspectors but the amount has not been written off, wholly or partly.
Sub-standard asset is the asset in which bank have to maintain 15% of its reserves. All thoseassets which are considered as non-performing for period of more than 12 months are calledas Doubtful Assets. All those assets which cannot be recovered are called as Loss Assets.
EFFECT OF NPA IN BANK
NPA in simple words may be defined as the borrower does not pay principal and interest for
a period of 180 days.
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The core banking business is of mobilizing the deposits and utilizing it for lending to
industry. Lending business is generally encouraged because it has the effect of funds being
transferred from the system to productive purposes which results into economic growth . The
debtor take the funds from the bank in the form of credit and he have to payback the principle
amount with the interest to the creditor as a result the creditor (Bank)gets the profit in theform of interest and again this profit is reinvested leading to the growth of the economy.
Because of the non performance or non recipt of interest or principal , the banks (creditor)
money in the form of funds get blocked and is not available for furtherence of Banking
business and thus the profit margin of the Banks goes down.
Profitability:
NPA means booking of money in terms of bad asset, which occurred due to wrong choice ofclient. Because of the money getting blocked the prodigality of bank decreases not only by
the amount of NPA but NPA lead to opportunity cost also as that much of profit invested in
some return earning project/asset. So NPA doesnt affect current profit but also future stream
of profit, which may lead to loss of some long-term beneficial opportunity. Another impact of
reduction in profitability is low ROI (return on investment), which adversely affect current
earning of bank.
Liquidity:
Money is getting blocked, decreased profit lead to lack of enough cash at hand which lead to
borrowing money for shot\rtes period of time which lead to additional cost to the company.
Difficulty in operating the functions of bank is another cause of NPA due to lack of money.
Routine payments and dues.
Involvement of management:
Time and efforts of management is another indirect cost which bank has to bear due to NPA.
Time and efforts of management in handling and managing NPA would have diverted to
some fruitful activities, which would have given good returns. Now days banks have special
employees to deal and handle NPAs, which is additional cost to the bank.
Credit loss:
Bank is facing problem of NPA then it adversely affect the value of bank in terms of market
credit. It will lose its goodwill and brand image and credit which have negative impact to the
people who are putting their money in the banks.
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Provision on types of assets
Provision is allocating money every year to meet possible future loss.
REASON OF NPA
NPA arises due to a number of factors or causes like:-
1.
Speculation : Investing in high risk assets to earn high income.
2. Default : Willful default by the borrowers.
3. Fraudulent practices : Fraudulent Practices like advancing loans to ineligible persons,advances without security or references, etc
.
4. Diversion of funds : Most of the funds are diverted for unnecessary expansion anddiversion of business.
5. Internal reasons : Many internal reasons like inefficient management, inappropriatetechnology, labour problems, marketing failure, etc. resulting in poor performance of the
companies.
http://kalyan-city.blogspot.com/2011/04/what-is-management-definitions-meaning.htmlhttp://lh4.googleusercontent.com/-zsd1nASn6ZI/TxQGN10o23I/AAAAAAAAFmk/QK0L41_Vebk/s800/Provision-on-Types-of-Assets.pnghttp://kalyan-city.blogspot.com/2011/04/what-is-management-definitions-meaning.html7/27/2019 Report on NPA
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6. External reasons : External reasons like a recession in the economy, infrastructuralproblems, price rise, delay in release of sanctioned limits by banks, delays in settlements
of payments by government, natural calamities, etc
MEASURES TO SLOVE PROBLEM OF NPA
1. Debt Recovery Tribunals (DRTs)
Narasimham Committee Report I (1991) recommended the setting up of Special Tribunals to
reduce the time required for settling cases. Accepting the recommendations, Debt Recovery
Tribunals (DRTs) were established. There are 22 DRTs and 5 Debt Recovery Appellate
Tribunals. This is insufficient to solve the problem all over the country (India).
2. Securitisation Act 2002
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest
Act 2002 is popularly known as Securitisation Act. This act enables the banks to issue notices
to defaulters who have to pay the debts within 60 days. Once the notice is issued the borrowercannot sell or dispose the assets without the consent of the lender. The Securitisation Act
further empowers the banks to take over the possession of the assets and management of the
company. The lenders can recover the dues by selling the assets or changing the management
of the firm. The Act also enables the establishment of Asset Reconstruction Companies for
acquiring NPA. According to the provisions of the Act, Asset Reconstruction Company of
India Ltd. with eight shareholders and an initial capital of Rs. 10 crores has been set up. The
eight shareholders are HDFC, HDFC Bank, IDBI, IDBI Bank, SBI, ICICI, Federal Bank and
South Indian Bank.
3. Lok Adalats
Lok Adalats have been found suitable for the recovery of small loans. According to RBI
guidelines issued in 2001. They cover NPA up to Rs. 5 lakhs, both suit filed and non-suit
filed are covered. Lok Adalats avoid the legal process. The Public Sector Banks had
recovered Rs. 40 Crores by September 2001.
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4. Compromise Settlement
Compromise Settlement Scheme provides a simple mechanism for recovery of NPA.
Compromise Settlement Scheme is applied to advances below Rs. 10 Crores. It covers suitfiled cases and cases pending with courts and DRTs (Debt Recovery Tribunals). Cases of
Willful default and fraud were excluded.
5. Credit Information Bureau
A good information system is required to prevent loans from turning into a NPA. If aborrower is a defaulter to one bank, this information should be available to all banks so that
they may avoid lending to him. A Credit Information Bureau can help by maintaining a data
bank which can be assessed by all lending institutions.
HOW TO MANAGE NPA
Do should be taken during the session of loan
Should be proper use of fund.
Should be session term complains
Should be loan term and condition fulfil.
Should be abdicating term loan.
Should be following up.
(i) Interest and/or instalment of principal remainoverdue for a period of more than 90 days in respect of a
Term Loan.
(ii) The account remains 'Out of order'@ for a period of
more than 90 days, in respect of an Overdraft/ Cash Credit
(OD/CC).
(iii) The bill remains overdue for a period of more than
90 days in the case of bills purchased and discounted,
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(iv) Any amount to be received remains overdue for a
period of more than 90 days in respect of other accounts..
>.NPA is part of the operational risk of the banking
industry. NPA can be reduced and managed a certain level by
a prudential banker. Before account turn NPA its give
signals, which type of accounts should be categarised as
Special Mentioned Account (SMA) and treatment should be
given accordingly:
(i) The account should be categorised as SMA 1 if
overdue remains for 30 days & SMA 2 if remains overdue more
than 30 days to 89 days. Efforts for recovery of overdue
within the time to be done. Regular follow-up and noticesshould be sent to borrower
(ii) Restructuring/rescheduling/re negotiation of the
terms of loan agreement in Term loan in case to case basis
in case of need
(iii) Recovery of interest in CC/OD account be done.
(iv) Submission of stock statement and financial datawithin the prescribed time limit.
These are some steps to manage (Recover and Reduce) NPA inBanking Sector
Early symptoms By which one can Recognize performing Assest Turning in to Non
Performance Assests
Four categories of early symptoms:-
( 1 ) Financial:
Non-payment of the very first instalment in case of term loan.Bouncing of cheque due to insufficient balance in the accounts.Irregularity in instalment.Irregularity of operations in the accounts.Unpaid overdue bills.
Declining Current Ratio.
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Payment which does not cover the interest and principal amount of that instalment. Whilemonitoring the accounts it is found that partial amount isDiverted to sister concern or parent company.
( 2 ) Operational and Physical:
If information is received that the borrower has either initiated the process of winding up orare not doing the business.Overdue receivables.Stock statement not submitted on time.External non-controllable factor like natural calamities in the city where borrower conduct his
business.Frequent changes in plan.
Non payment of wages.
( 3 ) Attitudinal Changes:
Use for personal comfort, stocks and shares by borrower.Avoidance of contact with bank.Problem between partners.
( 4 ) Others:
Changes in Government policies.Death of borrower.Competition in the market.
Effect of NPA On borrower
The day to day operating the account becomes difficult as Bank starts adjusting moneydeposited against their dues.
The reputation of the borrower in the market is adversely affected. The Bankers attitude towards the borrower becomes more arrogant, authoritative and
threatening, instead of extending helping hand to them to get out of the situation.
This leads to demoralization of the borrower who has been working with the Bank fornumber of years and as customer has contributed in the profit of the bank
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INRODUCTION:-
For retail lending, the Internet has opened the door to a whole new world
In fact, it has fundamentally changed the way in which business is done and services are
delivered.
Whether in a retail store, a restaurant, or a bank,
consumers expectations have changed. They expect businesses to provide
services that are simple to understand, tailored to their needs, and rapidly
delivered. They also expect to connect in real time and on demand through
whatever channel they preferin person, over the Internet, by phone, or
through a mobile device.
Financial institutions have recognized these trends and have increased their
hours of operation, enhanced their online offerings, and developed mobile
applications. Although these changes have already improved the way
banking is done, todays retail lenders still have the opportunity to be on the
leading edge of this transformation. To be successful, lenders will need a
clear view of how these changes will be reflected in their market and how to
make the most of this new reality.
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PROJECT ON RETAIL LENDIND SECOND PART
RETAIL LENDING SCHEME
UNION HOME
PURPOSE
Purchase of house/flat
Construction of house/flat
Repairs/improvement/extension
Repayment of loan availed from other agency/Bank/NBFC
For purchase of plot sold by Govt. recognized agencies, local development authorities,
housing boards and construction of house thereon
For purchase/construction of 2nd house/flat
ELIGIBILITY
Indian Citizen not below 21 years
Individuals who may be employed/self-employed in business, having regular income
Person engaged in agriculture & allied activities
Singly or jointly with other family members viz. father, mother, spouse, son who have
regular source of income
Minimum 50% marks as per investment grade scoring chart
QUANTUM
Depending on repayment capacity and value of property
MARGIN
20% for purchase/construction for loans upto ` 200 Lakh
35% for home loan limit above ` 200 Lakh
20% of cost of repair
20% for purchase of plot
Margin has to be calculated on the value of the property, excluding registration charges,
stamp duty, insurance, transfer fee, etc.
SUSTENANCE (NET TAKE HOME PAY)
Gross Income levels* Sustenance (Percentage of Net)
Up to ` 3 Lakh 45%
` 3 Lakh to ` 8 Lakh 40%
` 8 Lakh to ` 12 Lakh 35%
` 12 Lakh to ` 18 Lakh 30%
Above ` 18 Lakh 25%
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*Income of all the applicants to be considered together.
REPAYMENT TENURE
Moratorium period upto 18 months
Maximum repayment period of 30 years for construction/purchase of house/flat
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Case of home loan sample calculation
Assumption :gross annul income=rs.9 lakhs,ROI=9%p.a,tenure=25years,cost of
property=rs.45 lakhs,annual taxes=rs 1.32 lakh,total other obligations=rs.1.44 lakhs
Calculation for arriving at quantum of loan
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UNION MILES
PURPOSE
ELIGIBILITY
-employed in business, having regular income
irement
QUANTUM
40%
-wheeler
-wheeler
-wheeler
MARGIN
-road price (Vehicle Cost + Registration Charges + Insurance + Road Tax)
REPAYMENT TENURE
-Wheeler: Max. 84 months
-wheeler: Max. 60 months
-Wheeler: Max. 36 months
SECURITY
GUARANTEE
rd party guarantee of sufficient means
INSURANCE
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21/11/2011)
RATE OF INTEREST
Rate of Interest
New 4-wheeler 10.70% (fixed)
New 2-wheeler 15.00% (fixed)
Old 4-wheeler (not older than 3 years) 15.50% (fixed)
PROCESSING CHARGES
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UNION MORTGAGELoan against property
PURPOSE
Loan would be granted for meeting personal needs like marriages, higher education, business
travel, medical emergencies or any unforeseen expenses and even as a liquidity finance
ELIGIBILITY
Any individual owning residential / commercial property (land/plot/building) and who files
income tax return. In absence of IT assessment for agriculturists, income certificates by
relevant authorities can be accepted
Minimum age18 years
Maximum age60 years for salaried class and 65 years for non-salaried class
Net monthly income of ` 10,000 p.m. for salaried individuals and net annual income of
minimum ` 1.20 Lakh for othersIncome of earning family members (spouse, father, mother, son, unmarried daughter) can
be added to enhance quantum of loan, if he / she join as co-applicant
All the owners of the property, with/without income, must compulsory join as co-applicant
SOD limit allowed only to non-salaried including professionals as liquidity finance
Salaried persons are not eligible for SOD facility
NRIs are not eligible
Min. 40% marks as per investment grade scoring chart of Union Home model
QUANTUM
Loan up to 4 times of gross annual income as per the latest IT return (for both salaried &
non-salaried class) subject to the following sustenance -
Income levelsSustenance
(Percentage of Net)
Up to ` 3 Lakh 45%
` 3 Lakh to ` 8 Lakh 40%
` 8 Lakh to ` 12 Lakh 35%
` 12 Lakh to ` 18 Lakh 30%
Above ` 18 Lakh 25%
Minimum ` 5 Lakh
Maximum as follows
In Metro / Urban centres
Salaried class Non-salaried class
` 100 Lakh ` 200 Lakh
In Semi-urban centres
Salaried class Non-salaried class` 50 Lakh ` 100 Lakh
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Income of family member (father / mother / son / spouse / unmarried daughter) can beadded to arrive at the quantum of loan, if he / she join as co-applicant
SOD facility: Procedure for sanctioning working capital to be followed
MARGIN
50% of the fair market value of the property mortgaged as per the latest valuation report
from approved valuer of the bank at the time of sanctioning of advance
Fresh valuation every three years is required during currency of advance
REPAYMENT TENURE
Loan amount together with interest is to be repaid in maximum 120 equal monthly
installments
- Subject to closure of loan in full by the time the borrower attains the age of
o 60 years for salaried classo 65 years for non-salaried class
SOD limit gets reduced by 20% at the time of each annual review/renewal dates
commencing from 5 years prior to attaining 65 years of age
RATE OF INTEREST
Rate of Interest (floating) (Base Rate + 3.75) % = 14.00%
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UNION HEALTH
Loan Scheme for Medical Practitioners
PURPOSE
and other sophisticated equipments including
operation theatre equipment, air conditioners, generators, personal computer and accessories
with software for diagnosis and UPS system.
the area of operation
of the branch.
-up of clinic, furnishing and cost of medicines, if any to be
procured.
when taken along with
loan for other purposes i.e. premises, equipment etc. i.e. a composite loan.
covered under this scheme. The same should not be classified under priority sector advances.
physiotherapy centre / set-up by radiologists / qualified doctors.
Composite loan is also permissible i.e.
AND
of premises taken on lease) can be considered with
a maximum cap of up to 6 months rent or ` 30 Lakh, whichever is lower, subject to
following terms and conditions:
and the lease period not to be, in any
case, less than tenure of the loan
undertaking from the owner of premises that he/she will refund the deposit amount, to the
party through the bank only
case there is any surplus left the same will be returned to the borrower
concerned Regional Office and his report must be held on record.
ELIGIBILITY
minimum 3 years experience in any branch
of medical science, with minimum qualification of:
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(Bachelor of Homoeopathic Medicine & Surgery)
OR
like
-Ray Technology and Radiology
-year experience can be considered for financing under
the scheme with a maximum loan quantum restricted to ` 20 Lakh. This norm will be
applicable only for borrowers having experience between 1-3 years.
25 years
65 years
profession in which only Doctors/ Dentists are Partners/ Proprietor
QUANTUM
Minimum Maximum
` 2 Lakh ` 500 Lakh
MARGIN
and other assets to be financed
REPAYMENT TENURE
Maximum repayment tenure of
60 months for purchase of equipment/ machinery/ vehicle etc
84 months for others & composite loans
Moratorium period of upto 6 months
Interest during moratorium period to be serviced as when applied in the account.
The repayment period should be co-terminus with the maximum permissible age.
RATE OF INTEREST
Rate of Interest
Fixed 12.60%
Floating (Base Rate + 3.00) % = 13.25%
PROCESSING CHARGES
0.50% of loan amount + service tax
SECURITY
Purchase of equipment / machinery / vehicles etc.
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Prime Security Collateral Security
Hypothecation of assets
purchased / created out of
banks finance
(irrespective of quantumof loan).
50% of loan amount by way of
Mortgage of immovable assets. No EM of 3rd party
property to be accepted.
Pledge of movable assets like Bank Deposits/ NSCs/KVPS/ surrender value of LIC policies
Acquisition of premises and/or expansion / renovation / modernization of existingpremises
Prime Security Collateral Security
Mortgage of land and building for which advance is given
The sanctioning authority may stipulate hypothecation of
existing / future movable assets as security on a case to case
basis
Nil.
Composite loan, i.e. for purchase of equipment/machinery vehicles etc. and acquisition of
premises and/or expansion / renovation / modernization of existing premises
Prime Security Collateral Security
Hypothecation of
assets purchased
/ created out of
banks finance
and mortgage ofland and
building for
which advance is
given.
The value of land and building for which advance is given, in
excess of 100% of loan amount, can be considered as collateral
security towards that quantum of loan sanctioned for purchase
of euipment / machinery / vehicle etc.
In case of shortfall, further security by way of:Mortgage of immovable assets. No EM of 3rd party property to
be accepted.
Pledge of movable assets like Bank Deposits/ NSCs/ KVPS/
surrender value of LIC policies etc
GUARANTEENo third party guarantee in case of individuals and proprietary concerns.Personal guarantee of all partners in case loan is given to a firm.
REPAYMENT CAPACITYRepayment capacity to be worked out on the basis of existing income & projected cash
flows.
Need based subject to assessment of the repayment capacity.
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UNION REVERSE MORTGAGE
Loan against propertyPURPOSE+
supplementing the present income
Loan amount should not be used for speculative, trading and business purposesLump sum payment is to be used only for medical treatment of self, spouse and dependents
if any
Purchasing annuity plan from SUD Life (Refer IC: 8866 dated 27 th January 2011)
ELIGIBILITY
Single or jointly with spouse in case of a living spouse
Minimum age of borrower to be 60 years and that of the spouse to be 55 years
The property against which the borrower proposes to raise the loan should be his/her
permanent primary residence and should be self owned and self-acquired
DISBUSEMENT
Monthly payout by credit of SB account in joint name of borrowers with 'E' or 'S' mandate
Disbursement in combination of monthly payout & lump sum
However maximum lump sum payment (including interest up to maturity) may be
permitted to the extent of 50% of loan
QUANTUM
The loan amount along with interest for the entire tenure will be 90%(Metro)/
80%(Urban)/70%(Other areas) of the assessed market value of the property at the time of
sanction
Minimum of ` 1 Lakh
Maximum of ` 100 Lakh
MARGIN
Metro - 10%
Urban - 20%
Other Areas - 30%
RATE OF INTEREST
Rate of Interest12.75%
(Fixed & to be reset every five years)
RAPAYMENT TENURE
Need based, subject to maximum of 20 years
Minimum Tenure based on age of borrower:
Age 60 to 65 years - 15 years
Age more than 65 years - 10 years
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PROCESSING CHARGES
One time upfront fee of 0.50 % of the loan amount, subject to a maximum of ` 10,000 plus
service tax
SECURITY
The loan shall be secured by way of equitable mortgage of residential property
OTHER CONDITIONS
The house property is to be insured by the borrower at his cost against fire, earthquake and
other calamities
The borrower shall ensure to pay all taxes, charges etc, on time
The borrower shall maintain the property in good condition
Bank reserves the right to pay insurance premium, taxes, charges, etc. by reducing the loan
amount to that extent, if the borrower fails to pay the same on time
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Personal Loans - Advantages & Disadvantages
Personal loans can be availed for any purpose and so it helps at any point you do not have
cash. The rate of interest for personal loan is very low, so it is advisable to take a personalloan for most purposes, even for buying consumer durables. You should know the advantagesand disadvantages of personal loans before going for it.
Advantages:
Personal loans do not require you to produce any collateral or security, like other loans. There is no agent or middleman while obtaining this loan. Banks are always ready to offer personal loans. All that is required is that you need to satisfy the eligibility criteria. You may use the loan for educational or even holiday purposes.
You can avail a personal loan during times of emergency when you are short of cash, sinceyou need not answer too many questions to the bank. You may avail personal loans according to your eligibility ranging anywhere from Rs.
15,000 to Rs. 10,00,000. The payment period is up to a maximum of 60 months. It is better to avail a personal loan than to borrow cash on your credit card comparing theinterest rate on both.
Disadvantages:
The eligibility criteria are stricter in case of personal loans, since there is no security
required and the paper work is minimum. The bank checks on you capability to repay more than any other loan due to the same
reason. Since the bank has a higher risk while providing personal loans, they follow a list of
approved categories of borrowers. Interest rates for personal loans could range from 12 percent to 30 percent, while the servicecharges and prepayment penalty are also very high.
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Advantages of home loan
It gives you the opportunity through which you can build your own house, your own place
where you can spend the rest of your life according to your own standard and lifestyle. A
home loan gives you the facility to get the complete money that you need to build your houseand pay the amount that you have taken for the loan in instalments without giving you mental
pressure of getting out such a big amount from your business or if you are salaried then
saving such big amount in years is a difficult task and saving such a big amount in the world
of today takes an age. Home loan provides an advantage that you don't have the pressure that
you will have to pay that amount in one go you have the option to pay the instalments in time
and complete the tenure and as your loan gets pay-off you are living in your own house as
well where you feel relaxed and calm down
. The disadvantages of loan
Home are that the interests rates have really gone high now and for a salaried person
pertaining a home loan from a bank is really very suffering because he has to pay the
interest+ principal upon every instalments and after the loan tenure finishes when thecustomer calculates how much interest he has paid then he finds out that he had paid double
the amount of which he got the loan approved. If you want to settle the loan before
instalments at that time the bank will also not facilitate you and further charge you with
penalty charges for early settlements and one point more that if your reason of termination is
not that much satisfactory then the bank will not get your loan settled early and because of
this you will be strangled in this thing for the duration that you have got the loan. during the
tenure of the loan the banktakes his interests in the first 2 years of your instalments and after
2 years when you go to terminate your loan your principal is outstanding is standing where it
was at the start and the bank has recovered its interest in the first 2 years so this really pisses
of the customer so home loan is a good option for persons who can manage there cashflows
otherwise its a trap in which one you jump then you really have to pay a very heavy price.
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Advantages Of Education Loan
Define as education loan can change the entire life of a person ,lending him towards a
successful life and financial indipendence.education loan enables you to meet a financial
demand of reputed MBA or any such professional course .the best part of these loan is that
ones you complete you objective and achieve financial freedom.you can pay easily.Hence, the commitment involved with such loan is very reasonable and appealing.
-financial institutions have made an education loan an easygoing task for the applicants one
can apply for the loan by visiting the bank in person or through website of the bank.majority
of the bank provide online application forms and detailed relevant information for application
convenience.
Student loan are great alternative as compared to conventional loan ,they not only offer
lucreative interest rate but also have easier terms and conditions,majority of the nationalized
bank generally do not ask for any security and charge no margins for the loan amount up to rs
4 lacs.
Anoter key benefitof these loans is the deferment, the borrower is required to repay the loan
while studing as the re-payment process commences after completion of the said course and
attaining a job within stipulated span of time student loans also show considerable flexibility
towards loaner in terms of repayment schedules.
The best advantages of education loans is that it not only satisfies the financial need to
proceed with higher education but helps saving repayment. Tax benefits on education loan
end up reducing overall cost of loans.
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Retail lending process
Loan origination
Loan origination is the process by which aborrowerapplies for a newloan, and
alenderprocesses that application. Origination generally includes all the steps from taking a
loan application up to disbursal of funds (or declining the application). Loan servicingcoverseverything after disbursing the funds until the loan is fully paid off. Loan origination is a
specialized version of new account opening for financial services organizations. Certain
people and organizations specialize in loan origination.Mortgage brokersand other mortgage
originator companies serve as a prominent example.
There are many different types of loans. For more information on loan types, see
theloanandconsumer lendingarticles. Steps involved in originating a loan vary by loan
type, various kinds of loan risk, regulator, lender policy, and other factors.
Application Process
Applications for loans may be made through several different channels and the length of the
application process, from initial application to funding, means that different organizations
may use various channels for customer interactions over time. In general, loan applications
may be split into three distinct types:
Agent assisted (branch-based) Agent assisted (telephone-based) Broker sale (third-party sales agent)
Self-serviceRetail loans and mortgages are typically highly competitive products that may not offer a
large margin to their providers, but through high volume sales can be highly profitable. The
business model of the individual financial institution and the products they offer therefore
affects on which application model they will offer
Agent Assisted (Branch-Based) Loan Application
The typical types offinancial servicesorganizations offering loans through the face to face
channel have a long-term investment in 'brick and mortar' branches. Typically these are:
Banks Credit Unions Building SocietiesThe appeal to customers of the loan offered directly in branches is the often long-standing
relationship that a customer may have with the institution, the appearance of trustworthiness
this type of institution has, and the perception that holding a larger portfolio of products with
a single organization may lead to better terms. From a bank's standpoint, cross-selling
products to current customers offers an effective marketing opportunity, and agents in
branches may be trained to handle the sale of many different types of financial products.
In a branch, customers typically sit with a sales agent who will assist the customer in
completing the application form, selecting appropriate product options (such as paymentterms and rates), collecting required documentation (new account openingcompliance
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requirements must be met at this stage), selecting add-on products (such asPayment
protection insurance), and eventually signing a completed application.
Dependent on the institution and product being offered, the application may be completed on
a paper application form, or directly into an online application through the agent's desktop
system. In either case, this phase of application is mostly concerned with the accurate captureof customer's details, and does not incorporate any of the background decisioning work
required to assess the suitability of the customer and the risk of default, or the due diligence
that must be performed to mitigate risk of fraud and money laundering activities.
A major complexity for the branch origination channel is making the process simple enough
that sales agents can be easily trained to handle many different products, while ensuring that
the many due diligence and disclosure requirements of the financial and banking regulators
regionally are met.
Many back-office functions of loan origination continue from this point and are described in
the Processing section below.
Agent Assisted (Telephone-Based) Loan ApplicationBroker-Sourced (Third Party Sales
Agent) Loan Application
Self-service Loan Application
Self-service web applications are taken in a variety of ways, and the state of this businesshas evolved over time
Print and fax applications or pre-qualification forms. Some financial institutions still usethese.
Print, write or type data into the form, send it to the financial institution Form fill on the web, print, and send to the financial institution (not much better)
Web forms filled out and saved by the applicant on the web site, that are then sent to orretrieved by (ostensibly securely) the financial institution
True web applications with interfaces to a loan origination system on the back end Many of the early solutions had a lot of the same problems as general forms (bad
work flows, trying to handle all manner of loan types in one form)
Wizard-style applications that are very intuitive and don't ask superfluous questionsJobs the online application should perform:
1. Present required disclosures, comply with various lendingregulations)2. Be compliant with security requirements (such asMulti-Factor Authentication) where
applicable.
3. Collect the necessary applicant data1.Exactly what is needed varies by loan type. The application should not ask for
data the applicant doesn't absolutely have to provide to get to a
prequalification decision for the loan type(s) they seek.
2.The application should pre-fill demographic data if the applicant is an existingclient and has logged in.
4. Make it easy, quick, and friendly for the applicant (so they actually complete theapplication and don't abandon)
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5. Get a currentcredit report6. Prequalify (auto-decision) the application and return a quick response to the applicant.
Typically this would be approved subject to stipulations, referred to the financial
institution, declined (many FIs shy away from this preferring to refer any application
that can't be automatically pre-approved.)
Processing
Decisioning & credit risk
Themortgagebusiness consists of a few people: the borrower, the lender, and sometimes
themortgage broker. The people that originate the loans are usually the mortgage broker or
the lender. Depending if the borrower has credit worthiness, then he/she can be qualified for a
loan. The norm qualifyingFICOscore is not a static number. Lender guidelines and
mitigating factors determine this number. Recent changes in the market and industry have
made stated income and stated asset loans a thing of the past and full income and asset
documentation is now required from the majority of Fannie Mae and Freddie Mac back
mortgage securities. Not only does one's credit score affect their qualification, the fact of thematter also lies in the question, "Can I (the borrower) afford this mortgage?" In most cases
the borrower can afford their mortgage. However, some borrowers seek to incorporate their
unsecured debt into their mortgage (secured debt.) They seek to pay off the debt that is
outstanding in amount. These debts are called "liabilities," these liabilities are calculated into
a ratio that lenders use to calculate risk. This ratio is called the "Debt-to-income ratio" (DTI).
If the borrower has excessive debt that he/she wishes to pay off, and that ratio from those
debts exceeds a limit of DTI, then the borrower has to either pay off a few debts in a later
time and pay off just the outstanding debt. When the borrower refinances his/her loan, they
can pay off the remainder of the debt.
Pricing policy varies a great deal. While you probably can't influence the pricing policy of a
given financial institution, you can:
Shop around Ask for a better rate - some financial institutions will respond to this, some won't Price match - many financial institutions will match a rate for a current customer[1]Pricing is often done in one of these ways. Follow the internal links for more details:
Everyone pays the same rate. This is an older approach, and most financial institutionsno longer use this approach because it causes low risk customers to pay a higher than
market rate, while high risk customers get a better rate than they might otherwise get,
causing the financial institution to get a lower rate of return on the loan than the risk
might imply.
Risk-based pricing. With this approach, pricing is based on various risk factorsincludingloan to value,credit score, loan term (expected length, usually in months)[1]
Relationship based pricingis often used to offer a slightly better rate to customers thathave a substantial business relationship with the financial institution. This is often a price
improvement offered on top of the otherwise computed rate.
Loan Specific Compliance Requirements
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Many of the customer identification and due diligence requirements of loan origination are
common tonew account openingof other financial products.
The following sections describe the specific requirements of loans and mortgages.
Fees and 'Points'
Fees for loan origination are called loan [origination fee]s and are often required by most
lenders and brokers.
Add-onCredit insurance&debt cancellation Creditcross selling Up-selling Down-selling Refinancing Loan RecaptureAppraising Collateral
The next step is to have aReal Estateappraiserappraise the borrower's property that he
wishes to have the loan against. This is done to prevent fraud of any kind by either the
borrower or the mortgage broker. This prevents fraud like "equity stripping" and money
embezzlement. The amount that the appraiser from either the borrower's side or the lender's
side is the amount that the borrower can loan up to. This amount is divided by the debt that
the borrower wants to pay off plus other disbursements (i.e. cash-out, 1st mortgage, 2nd
mortgage, etc.) and the appraised value (if a refinance) or purchase price (if a purchase)
{which ever amount is lower} and converted into yet another ratio called theLoan to
value(LTV) ratio. This ratio determines the type of loan and risk the lender is put up against.
For example: if the borrower's house appraises for $415,000 and they wish to refinance forthe amount of $373,500 - the LTV ratio would be 90%. The lender also may put a limit to
how much the LTV can be - for example, if the borrower's credit is bad, the lender may limit
the LTV that the borrower can loan. However, if the borrower's credit is in Good condition,
then the lender most likely not put a restriction on the borrower's LTV. LTV for loans may or
may not exceed 100% depending on many factors.
The appraisal would take place on location of the borrower's property.
Processing Documents/Loan Underwriting
Document Preparation
Document Preparation or Doc Prep is the process of arranging and preparing the borrowers
closing contracts. These documents vary from industry to industry but generally contain a
note, disclosures, and other documents describing and detailing the agreement between the
borrower and lender.
Electronic Signature
Digital Signature
Mortgage Underwriting
An underwriter is a person who evaluates the loan documentation and determines whether or
not the loan complies with the guidelines of the particular mortgage program. It is the
d i ' ibili h i k f h l d d id d li h
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